The way we feel about money may have a big impact on our overall financial health. A positive outlook on money tends to make us more conscious savers and spenders, while a negative one can lead to harmful money habits.
“Your mindset predicts your income, net worth, financial behaviors, and debt levels,” says Brad Klontz, a certified financial planner who founded the Financial Psychology Institute. Our core beliefs around money inform our behavior—and our behavior shapes our financial decisions.
“If you want to do well with money, it’s actually pretty simple: Save for the future and don’t spend more than you make. But those are the two areas that most people get in the most trouble over,” says Klontz. “So why aren’t we taking better care of ourselves? The answer is mindset.”
The mindsets that can hurt your finances
Here are three of the most common money mindsets that Klontz says can be bad for your financial health:
People with this attitude put off dealing with money, or hide from it altogether, because it triggers feelings of fear and shame. This could mean not wanting to budget, ignoring your bills, ducking creditors, and putting off saving for retirement. It’s essentially an out-of-sight, out-of-mind mentality.
“Money avoidance is strongly associated with financial denial behaviors, like ‘I don’t want to think about my finances,’” says Klontz. “It does exist, it is real, and it does hurt you.” Refusing to deal with money can have real-world implications: Bills can pile up and debt can also start to feel overwhelming.
Those with this mindset believe “my self-worth is attached to my net worth,” explains Klontz. They may tell others they make more than they actually do, or routinely overspend on non important things like designer clothing and iPhone X.
“We are wired to be constantly aware of our social position within a tribe, and if you feel like your position is being somewhat compromised, it fires off all your survival instincts,” he says. But overspending on stuff you don’t need can cause you to rack up debt or hinder your ability to save.
This mindset is rooted in the deeply held belief that more money will make you happier and solve all your problems.
“It’s really looking at money as the source of happiness and fulfillment in your life,” says Klontz. “Of course, that’s associated with terrible financial outcomes, like lower income, lower net worth”
How to cultivate the right money mindset
A lot our beliefs around money, Klontz says, are subconscious. The act of bringing awareness to your beliefs can jump-start change.
First, Klontz suggests asking yourself where your money beliefs came from. What did your parents teach you about money, and what was it like for them growing up in terms of their socioeconomic status? What were your family’s finances like when you were growing up? These aren’t small questions—and thinking about the answers can help you better understand and change your relationship with money.
The mindset that can help you grow wealth
According to Klontz, the money mindset that is associated with strong financial health and higher net worth is called “money vigilance.” It assumes you have the right amount of financial anxiety—enough to keep you motivated, but not so much that you’re stressed out.
“It is what informs the understanding that it is important to save for a rainy day, and that you’d be a nervous wreck if you didn’t have enough money saved for an emergency”. Klontz added that many wealthy people have and benefit from this mindset. This money mindset goes hand in hand with financial literacy. Education helps build confidence and awareness, which in turn can help you feel empowered to handle your finances.